With the January median price for Kitsap real estate ($224,450) near it's lowest level in several years and the continued availability of low conventional loan rates, our affordability report this month looks very good. We expect the median home price will rise back to typical levels from last year as sales pick up this spring, but the big question is what will happen to mortgage rates when the Federal Reserve stops purchasing debt and mortgage backed securities from Fannie Mae and Freddie Mac. Supposedly rates have been driven down by this policy for the past year or more, and some parties see rates rising to near 6% by the end of this year. However, an analysis on the blog Calculated Risk disputes the magnitude of the rise, saying he expects .35 to .5% increase and citing an analysis by Amherst Securities that expects perhaps as little as .25% increase.

The Washington Center for Real Estate Research provides local affordability calculations that we can use to check on housing affordability using current median prices and interest rates. Note that unlike the discussion above these calculations only compare the affordability of standard conventional loans, not the different types of loan products that have been offered. We assume that a buyer making the median family income puts 20% down on the median priced home and obtains a 30 year fixed rate mortgage. We assume that a first time buyer making 70% of the median income puts 20% down on a house priced at 80% of the median and obtains a 30 year fixed rate mortgage. We assume that both buyers can afford to spend a maximum of 25% of their monthly income on the principal plus interest of the loan. Using the annual averages of median price, median income, and average annual 30 year fixed interest rate since 2003, we plot an affordability index equal to the maximum affordable payment divided by the actual payment. When the index is greater than 1, the loan is affordable to the typical buyer. When it is less than 1 some buyers cannot afford to purchase. Our numbers for 2009 are estimates using the latest monthly data for median prices and interest rates (2008 has been updated with average annual values), and an estimated median family income for 2008 and 2009. With interest rates remaining nearly level at 5.12% in February for a typical 30 year fixed rate conforming loan and the median price falling in January to $224,450, affordability is improved and remains very good. The outlook for rates is that they will continue to rise in the coming year, with some experts predicting they'll reach 6% by the end of 2010. Keeping in mind how median prices can be deceptive, you should be aware that the bulk of sales are concentrated below $400,000, with considerably fewer than normal in the higher price ranges. The affordability index improved to 1.39 in January from 1.29 in December, almost entirely due to the lower median price. First time buyer affordability improved to 1.21 from 1.13 last month. These are big improvements, but we probably cannot expect the median price to remain this weak going into spring. Below is a graph of the year-to-year changes in affordability and a second graph showing month-to-month affordability progress over the past year.

February's APR is 5.065% on a 30-Year and 4.573% on a 15-Year, both conforming. January's rates were 5.191% on a 30-Year and 4.573% on a 15-Year, both conforming. If you qualify for FHA, VA, or USDA loans , these programs have are attractive for low downpayment buyers. Limits for FHA and conventional conforming loans went up with the stimulus bill. The FHA maximum is $475,000, and the conventional conforming limit has returned to $475,000. Lending programs for jumbo loans have improved considerably, with the larger banks starting to come back to this market. A typical 30 year fixed jumbo APR (with total costs of the loan, not just the rate factored in) is 5.643% on one major bank web site - lower than last month. Local credit unions and savings and loans may be able to beat this rate for some jumbo loans. To check the daily rate you can contact your lender or preview web sites such as this one - http://bankrate.com/ .